Borrowers often take out loans to finance significant purchases, such as purchases of property. Such loans are then paid off over a period of time according to a predetermined payment schedule. Sometimes, a borrower may wish to pay off a loan early (“prepayment”). Often times, determining the amount that is to be paid when prepayment occurs is a time-consuming and error-prone process. In addition to the unpaid principal balance, any unpaid interest, and any other processing fees or charges, many loans include prepayment premiums that are to be paid upon early satisfaction of the loan. Prepayment premiums ensure that the lender receives the expected interest payments for the loan or some otherwise satisfactory compensation.
The manner in which the payoff amount (including the prepayment premium) is to be calculated is typically specified in the loan agreement between the borrower and lender. There are various ways that loan agreements typically specify for calculating prepayment premiums. One conventional method, known as “declining premium,” specifies premiums to be paid which decline as the loan reaches maturity. Another conventional method, known as “yield maintenance,” allows the lender to attain the same yield as if the borrower had made all scheduled mortgage payments until maturity. Yield maintenance prepayment premiums typically are designed to make lenders indifferent to an early prepayment by a borrower. To this end, the yield maintenance payoff amount is typically calculated based on a reference interest rate (e.g., US treasury rate). The prepayment premium may be equal to the present value of unpaid principal and interest payments. There are a number of factors that may significantly influence payoff calculations and administration, e.g., the date from which the prepayment premium is calculated, the reason for early satisfaction of the loan, the interest rate on the loan, etc.
In addition, once a loan is paid off, there are often times multiple parties that receive a portion of the funds received from the borrower. For example, the lender or other servicer typically receives a portion of the payoff amount from the borrower. Additionally, many loans are often resold or repackaged in secondary markets. For example, in the mortgage finance industry, multi-family homes may serve as collateral for loans which are subsequently pooled and used to create an MBS (mortgage-backed security). The MBS is an investment instrument that can be sold to investors in the global capital markets. Upon sale of the MBS, lenders can turn around and make new loans using proceeds from the sale. In effect, the MBS is a way for the global capital markets to provide capital for loans to fund home ownership. When a loan is pooled into an MBS, the investor in the MBS is among the parties that receives a portion of the payoff funds received from the borrower.
The time-consuming and tedious nature of calculating payoff amounts is made worse by the fact that these amounts may be calculated multiple times throughout the life of a loan. In addition to calculating the payoff amount and the prepayment premium when the borrower actually pays off the loan, it is often desirable to calculate these amounts at other times. For example, in some instances, a borrower may be contemplating paying off the loan early, and may request a quote so that the borrower knows what the payoff amount would be, i.e., should the borrower decide to actually pay off the loan. Ultimately, however, the borrower may decide not to pay off the loan at that time. Accordingly, interested parties may request information regarding payoff amounts and prepayment premiums multiple times during the life of the loan.
Therefore, there is a need to provide a system that makes payoff quoting and reporting more convenient. Additionally, there is a need for a system which provides easier access to information regarding payoff amounts. It should also be understood that the techniques described herein may also be applied to meet other needs instead of or in addition to the above needs. For example, although the systems and methods discussed herein are described in terms of home mortgages, it will be apparent that the systems and methods may be used in connection with other types of assets, loans and/or other investments.